When airline frequent flyer programs first launched, it wasn’t clear whether they’d succeed. American AAdvantage was initially introduced in 1981 as a ‘temporary promotion’.

By 1986 the very first airline co-brand credit card was issued: the Continental OnePass TravelBank MasterCard. Airline loyalty programs were so successful, and their currency so desired by the public, that other companies would pay them to use the brand and currency. This turned what’s usually a cost-center, marketing, into a profit center.

When United Airlines entered bankruptcy 22 years ago, the only profitable part of the company was Mileage Plus. The airline’s first call after each court hearing was to Jamie Dimon. It was said they flew through bankruptcy to support the underlying credit card business.

As CEO of American Airlines, Doug Parker used to refer to AAdvantage as “the card program.” It wasn’t about customer loyalty or flying, it was about selling miles to Citibank.

The role of airline frequent flyer programs as the profit driver of airlines became much better known during the pandemic as United, Delta and American each borrowed $6.5 to $10 billion against those future income streams.

Delta’s Amex deal involves gross revenue of approximately $7 billion per year alone. With numbers like those, it’s easy to focus only on the card. It’s easy to get lazy and to ignore the rest of the loyalty program, and the possibilities it opens up for the business. But when you do that, you begin to risk the value of the program that drives top-line revenue, also. Far better to focus on fundamentals and drive as much value as possible.

Air Canada Executive Vice President Mark Nasr, who has Aeroplan within his purview, has a stark warning for frequent flyer programs, according to Airline Observer‘s Brian Sumers. Writing about Nasr’s remarks during Air Canada’s recent investor day, Sumers noted Nasr’s comments that “some frequent flyer schemes may be too focused on selling points to third parties and not as concerned with nurturing airline loyalty. Good programs can do both, he said.”

“We all recognize that travel loyalty programs have excelled at driving profits for co-brand cards as well as rewarding frequent flyer behavior,” Nasr told analysts. “Ironically, however, leading airlines have been victims of their own success in this regard.”

Nasr explained that many retailers still use their loyalty schemes to drive sales. But because airline loyalty has become an independent business, some carriers have forgotten the initial reason for these schemes: to put butts in seats at higher fares. “One could argue that travel loyalty programs have not been as successful as their retail cousins,” he said.

Nasr admits that Air Canada has had issues with this, too – that businesses who buy Aeroplan points sometimes do a better job using those with their own customers than the airline does, “Some of our research suggests that Aeroplan retail partners leverage our own points more optimally to drive their businesses than we do.”

Towards this end, Air Canada is planning to “revamp” points-earning, as Sumers summarizes “how members earn points by focusing on its mix of base and bonus miles, and “optimize” its elite status program, to simplify it and add new awards above existing tier levels.”

In some ways it’s a good problem to have,

• Mileage sales revenue is up 90% versus pe-pandemic
  
• They’re forecasting 50% growth by 2028
  
• And all sales revenue is US dollar denominated, so they aren’t harmed by weakness in the Canadian dollar.

Can anyone spot the Easter Eggs in this photo?

For a currency to continue to be attractive, it needs to deliver value – managers can’t just focus on sales to third parties, they have to focus on the customers who ultimately want the miles. And they want it because of the travel possibilities that it opens up, from redemptions to treatment with the airline. It’s important not to forget that the programs can actually create loyalty to the airline itself and not just to the in-wallet plastic; actually putting butts in seats and at a premium.